Global Macro Advisory for Active Investors

What to focus on in Global Macro for the week of August 15th, 2022
There were a number of Fed speakers last week and the message was basically as follows:

• The inflation fight is far from over

• The market is wrong to be pricing cuts next year
• We want tighter financial conditions and positive real rates
The markets, on the other hand, think the Fed will end up being more moderate, either by
fortune or necessity.
With last week’s CPI finally coming off the boil, thanks largely to the drop in gasoline, it is now
worth contemplating what the inflation drivers will look like going forward.
The change in energy MoM inflation has explained 89% of the change in MoM Headline CPI
since 2002.

Source: @VincentDeluard

Of course, there are other factors, and arguably they are more important now than they have
been over the last few decades.
Besides energy, shelter and food have been headline inflation's other two big drivers. Shelter, in
particular, is seen as a lagging component, but a sticky one.
According to Prometheus Research… “the shelter component is now in the driver’s seat and
accounts for 1.8% growth of the 8.45% headline yearly number. 5.5% yearly growth comes from
the top 5 areas.”
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 Global Macro Advisory for Active Investors

With real estate starting to soften, the shelter component should eventually follow, but again, it
is lagging and not expected to peak until the end of the year.

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 Global Macro Advisory for Active Investors

Shelter and food are expected to continue to hold up inflation relative to where it would
otherwise be.
Last month was a good example.

In terms of CPI ex food and

energy, motor vehicles, both new
and used, have been a huge driver
of core goods prices.
However, real-time data suggests
car prices are starting to
moderate.

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 Global Macro Advisory for Active Investors

Over the last 15 years or so, US inflation has tended to lead European inflation by roughly 3-
months.

Having said that, this time really is likely to be a bit different given the European energy crisis.

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 Global Macro Advisory for Active Investors

Here is an interesting chart that highlights the larger contribution of energy to Euro area
inflation.

With European NatGas still near the highs, the recent move in electricity prices in France and
Germany has been eye-watering.

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 Global Macro Advisory for Active Investors

Markets – Given the lack of clarity for me in the fundamental narrative these days, I have been
very focused on the charts. The IWM/SPY chart is a compelling chart with good risk/reward.
Having said that, I’m not sure I understand the drivers or am comfortable with the implications.

The DXY had a nice break lower on the weak CPI print. 107 is the line in the sand for bears.

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 Global Macro Advisory for Active Investors

With war on the border of Europe, a heat wave, wildfires, navigable rivers drying out, and
German & French electricity up 10x off the 2020 lows, it has been hard for EUR to get much
upside momentum. Watch 1.0400 above.

The AUD on the other hand, found its legs last week. I like a run at .7250+ initially.

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 Global Macro Advisory for Active Investors

The AUD outperformance has brought my bearish GBPAUD and EURAUD views to life. These are
big breaks.

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 Global Macro Advisory for Active Investors

I continue to like both BRL and the BOVESPA. However, I think you can tighten the stop in
USDBRL now and I would have taken off over 50% of the EWZ given the +20% move.

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 Global Macro Advisory for Active Investors

Full QT is coming in September when they ramp up the roll-offs. Also, larger than expected tax
receipts in April has meant lower issuance than normal from the Treasury. What will full QT and
increased issuance mean for Treasuries? The chart is a mess now and Thursday’s jump in long-
end yields did some damage to the lower yield thesis. The market has been embracing a higher
probability of a softer than expected landing. We will see if it lasts.

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 Global Macro Advisory for Active Investors

Gold has been holding in well and peaking through resistance after having held the bottom of
the range. Softer yields overall, and a weaker USD have helped. It is worth watching here but I
don’t have strong conviction here, nor is the location great.

Important Macro Data Releases and Events for the Week

Monday 8/15/2022 Sunday night ET - Industrial Production and Retail Sales

Industrial Production

Tuesday 8/16/2022 UK Employment Data (Jul)

ZEW - Economic Sentiment and Current Situation (Aug)

Building Permits and Housing Starts (Jul)

CPI (Jul)

Wednesday
CPI, PPI, and Retail Sales (Jul)
8/17/2022

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 Global Macro Advisory for Active Investors

GDP Q2 PREL

Retail Sales (Jul)

Fed's Bowman speech

FOMC Minutes

Employment Data (Jul)

Thursday
HICP (Jul)
8/18/2022

Initial Jobless Claims

Initial Jobless Claims 4-week average

Continuing Jobless Claims

Philly Fed Manufacturing Survey (Aug)

Friday 8/19/2022 Retail Sales (Jun)

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